Let “access to credit” be the “A” in your credit union’s DNA
Access is a commonly used word defined by Webster’s online dictionary as the “freedom or ability to obtain or make use of something.” Although it’s a commonly used word, history has taught us the term has not always been commonly applied. For example, access to U.S. citizenship for enslaved Africans did not occur until 1868 when the fourteenth amendment was ratified providing equal rights under the law. Access to the ballot box for women wasn’t a reality until the 1920 ratification of the nineteenth amendment guaranteeing the right to vote. With the exception of a few state-chartered credit unions, it wasn’t until 1934 that the underserved and unbanked received access to credit through the enactment of the Federal Credit Union Act passed by Congress. Undoubtedly, access provides a plethora of opportunities to those who are otherwise faced with closed doors. Through access, many Americans obtained and continue to receive financial emancipation from the debt servitude of loan sharks and other predatory lenders. Therefore, this last installment of my 3-part series, will look at Letting Access to Credit be the “A” in your credit union’s DNA.
Access to credit is fundamental to American life. Governments domestic and abroad would not be able to function and operate without accessing credit. Whether through treasury notes, bonds or everyday federal reserve notes we call currency, access to credit keeps our federal, state, and local governments afloat. Having access to credit is a wealth builder. It allows every day, hardworking people to become homeowners. Consequently, this opens a number of financial wellness possibilities that include but are not limited to home equity lines of credit to finance debt consolidation or support a child’s college tuition at low rates of interest. Entrepreneurs are also able to follow and execute their dreams through small business loans without the “chicken and egg conundrum” of not having assets to pledge as collateral because the same assets required to commit are unattainable without the needed access to credit.
Credit unions have been and still are at the forefront of providing access to credit to Main Street. It goes to the very core of what credit unions are and do – promoting thrift. However, there is always room for improvement. For that reason, the National Credit Union Administration (NCUA) created the Advancing Communities through Credit, Education, Stability, and Support (ACCESS) initiative. This “initiative helps to develop policies and programs in support of financial inclusion within the NCUA and the credit union system by addressing the financial services, financial literacy, and employment needs of diverse, underserved, and unbanked communities,” as noted on the agency’s website. As an example, over the years the NCUA has authorized federal credit unions to offer two (2) types of payday alternative loans called PALS I and PALS II. These short-term alternative payday loan products provide people of modest means access to needed funds at reasonable rates of interest avoiding the unending debt cycle trap. As a former credit union chairman and board member, I’m proud to have introduced a precursor to the PALS loan that resulted in my leading a financial roundtable at the 2014 Clinton Global Initiative in Denver, Colorado.
In addition to the ACESS Initiative, the five federal financial regulatory agencies including the NCUA in 2019 adopted a Joint Interagency Statement on the Use of Alternative Data in Credit Underwriting. This statement is a game changer and encourages credit unions to open access to the credit door a bit wider. The regulators now recognize “that use of alternative data may improve the speed and accuracy of credit decisions and may help firms evaluate the creditworthiness of consumers who currently may not obtain credit in the mainstream credit system,” according to the interagency statement. Therefore, credit unions may adopt “Second Look” programs using alternative data and analytical methods in their underwriting process for those borrowers who would otherwise not be creditworthy.
Access to credit is an integral bond within the DNA of credit unions. Likewise, diversity and not for profit status are also bonds that define who credit unions are and the service they provide. Credit unions are diverse, not for profit, and conduits of credit access. America would be a different place without credit unions. So, continue letting diversity, not for profit, and access to credit be the D, N, and A in your credit union’s DNA.
